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Hedge Funds Suffer Sharpest Monthly Drop Since the Start of the Pandemic

Hedge Fund Research’s index hasn’t seen a decline of this size since March 2020.

In November, hedge funds saw the largest single-month decline since the beginning of the pandemic, according to data from Hedge Fund Research, a hedge fund data provider.

The HFRI Fund Weighted Composite Index, which aggregates the performance of funds of all sizes, fell 2.2 percent. The index hasn’t seen a decline of that magnitude since a 9.1 percent drop in March 2020.

“November was an interesting month. It marked a reversal of October trends,” said Kenneth Heinz, HFR president, in a virtual press conference on Wednesday. “In the final days of the month, you saw a reversal of the post-quarantine, post-pandemic, and inflation-positive trades that have [defined] the last few months.” 

The index increased a modest 1.3 percent in October before slowly rolling over in November. Heinz said the bulk of the decline occurred in the last three trading days of the month, during which concerns over the spread of the Omicron coronavirus variant induced panic and sharp declines in the financial markets

“On the day after Thanksgiving and the final day of the month, you ended up seeing sharp declines,” Heinz said. 

Equity hedge funds, which invest long and short in specialized sub-strategies, saw the sharpest decline in November, with HFRI’s equity hedge index falling 2.7 percent. HFRI’s Macro (Total) Index, which tracks the performance of macro strategies, wasn’t far behind with a 2.4 percent decline in November. 

“Equity hedge was the worst performing area for the month, but macro was very [close], which clearly suggests that the macro funds did not have enough long fixed-income exposure to offset some of the declines, nor did they have enough short exposure to equity or to commodities,” Heinz said. 

Moving into December, Heinz said these trends have already started to correct themselves. While the fiscal panic induced by the emergence of the Omicron variant at the end of the month was a setback, Heinz said he expects a strong end to the year. 

“People became very concerned with the spread of the variant, and there was a messy panic across a number of asset classes that undid a lot of trades,” he said. “A lot of those trends have already corrected themselves in the early part of December. From a financial market perspective, we had one more decline based on the variant, but you’ve generally seen a strong start to December reversing a lot of those trends.” 

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